Refinance

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wuxicfa

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Would anybody share any thoughts on the difference on bond refinancing and mortgage refinancing?
 
Bond refinancing, better for the issuer, worse for the investor.

Mortgage refinancing, worse for the issuer, better for the investor.
 
the entity that borrows the money will only refinance when it is to their advantage. but because 'advantage' is very relative, it may not necessarily be to the disadvantage of the creditor (but usually is).
 
jamespucyk Wrote:
-------------------------------------------------------
> Bond refinancing, better for the issuer, worse for
> the investor.
>
> Mortgage refinancing, worse for the issuer, better
> for the investor.


Why would mortgage refi be worse for the issuer/better for the investor? The issuer pays a lower rate after the refi and the investor must reinvest the prepayment at a lower yield. Unless I'm misunderstanding the question, I'd say it's the same situation as when a bond is called.
 
issuer is always at advantage when refinancing occurs

in mortgage - person who buys house is issuer

in bond - corporation is issuer
 
Wirh rspect to mortgages...

I. Correct, the borrower probably isn't going to refinance unless they get a better deal than they currently have.

II. Just because the lender is getting a lower absolute % on their money does not mean they are making less money so long as their spread remains intact. As rates move down so too does the effective "cost" of lending for institutions.

example: Allowing the borrower to refinance at an absolute rate 2% lower than their current rate (say 6% from 8%) is definately a win for the borrower. But it the lender's cost of money is down by 2% (or more) it's also a win for the lender - they maintain or improve their spread, maintain balances, and have retained a happy customer and probably extracted a fee too!
 
I would say it's not so much a win for the lender as it is a competitive/defensive move. Any gain that could be made on a higher spread will be eroded because the borrower can go anywhere to refinance -- assuming rates among lenders are competitive. On average I would say lender's are maybe only a little better off because they collect a fee. But again competition minimizes this gain.
 
Basically, when a company refinances, the bonds will be trading at a premium, as market yields will be lower, coupons for new primary issues will be lower, and the company can issue lower debt. Existing holders of callable bonds will be disadvantaged as bonds will probably be called and refinanced, this will disadvantage investors.

An entity who took out a mortgage can prepay the mortgage (refinance with another mortgage). The investor or entity at the other end of the mortgage will be disadvantaged.

Both present a similar risk of repayment, although prepayment risk can be more of a gradual thing than call risk. Both have increased reinvestment risk.
 
Good points, you all!

So bond refinacing, in another word, is bond refunding, correct? Does bond refunding provision usually go with optional tender offer to protect investors?

Also both bond refinacing and mortgage refinancing will help borrowers get more equity out of it when interest goes down?
 
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